Applying Dell and DFC, Delaware Court Of Chancery Finds “Fair Value” Is Deal Price Less Synergies In Appraisal Action
On July 30, 2018, Chancellor Andre Bouchard of the Delaware Court of Chancery determined that the deal price minus synergies was the best evidence of the fair value of Solera Holdings, Inc. (“Solera”) in an appraisal action arising from the acquisition of Solera by Vista Equity Partners. In re Solera Holdings Stockholder Litigation, C.A. No. 12080-CB (Del Ch. July 30, 2018). Applying recent guidance from the Delaware Supreme Court, the Court found that the deal price should be afforded “dispositive” weight because the transaction process was characterized by “objective indicia of reliability,” including a robust sales process directed by an independent special committee and an efficient market for Solera shares. Accordingly, the Court found petitioners were entitled to $53.95 per share, consisting of the deal price ($55.85 per share) less the value of merger synergies ($1.90 per share).
In its effort to determine “fair value,” the Court of Chancery focused its analysis on the “indicia of reliability” emphasized by the Supreme Court in DFC Global Corporation v. Muirfield Value Partners, L.P., 172 A.3d 346 (Del. 2017), and Dell, Inc. v. Magnetar Global Event Driven Master Fund Ltd., 177 A.3d 1 (Del. 2017). In this regard, the Court found that (i) there was a robust bidding process, in which the special committee engaged with 18 potential bidders, both financial and strategic; (ii) a “fully-empowered” special committee that was “both competent and effective” actively negotiated the deal; and (iii) the market for Solera’s shares was efficient and well-functioning. The Court thus concluded that “the deal price, minus synergies, is the best evidence of fair value and deserves dispositive weight.”
As to the deduction for synergies, the Court noted that synergies do not only arise in the strategic-buyer context, but also may exist when there is a financial sponsor. In this case, the Court relied on the assessment of respondent’s expert—which petitioners failed to rebut—that took into account portfolio company revenue synergies, private company cost savings, and tax benefits of incremental leverage.
Notably, the Court rejected petitioners’ contention that $6.51 per share in transaction costs should be added if the Court otherwise relied on deal price. The Court held that the inclusion of such transaction costs would be inconsistent with the Delaware Supreme Court’s definition of “fair value,” which refers to “fair compensation” and what stockholders would “fairly be given” in an arm’s-length transaction. The Court also highlighted a policy concern: “If stockholders received payment for transaction fees in appraisal proceedings, then it would compel rational stockholders in even the most pristine deal processes to seek appraisal to capture their share of the transaction costs (plus interest) that otherwise would be unavailable to them in any non-litigated arm’s-length merger.”